Regardless of whether you are in the early stages of developing your transition to retirement strategy or have a long-established plan in need of updates, there are important considerations to factor in.
Often referred to by its acronym TTR, a transition to retirement plan or strategy outlines the process of winding down full-time employment to commence retirement.
As the government’s Money Smart website notes, this plan helps you to “supplement your income if you reduce your work hours, or boost your super and save on tax while you keep working full time”.
Given everyone’s circumstances are different and that there’s no one-size-fits-all approach to entering retirement, the ‘best’ transition to retirement plan is the one that works for you.
What should your transition to retirement plan cover?
Ensuring your plan is the best it can be means it should be comprehensive, detailed and actionable.
Plus, it needs to provide contingencies and fallback options for foreseeable adversities, such as relationship breakdown, chronic/terminal illness, pre-retirement redundancy/unemployment, natural disaster, financial loss (such as to a scam) and the premature death of a partner.
No transition to retirement plan is complete without covering:
- Timing: Reaching preservation age doesn’t automatically mean you can, should or are ready to retire. Also, when and in which financial year you retire may impact your taxable income.
- Full or staggered: Do you want to stagger into part-time work, self-employment or cease working altogether? Can you afford the latter?
- Solo or joint: Couples have an additional consideration to factor in, namely whether they will retire together or separately. This will depend on your respective ages, health and finances.
- Expenses: Your living costs will differ in retirement (no/fewer work expenses but more time at home, travelling and/or partaking in hobbies). Adjust your projected expenses accordingly to determine how much income you will need.
- Income: Retirement income may include superannuation, investment returns, cash, home equity, part-time employment, business income and a part or full pension. Plan this in advance to maximise earnings and avoid unwelcome shocks.
- Insurance: Insurance needs change in retirement, as professional and income protection needs wane while healthcare needs increase. More favourable terms on some policies may be accessible while you are still working, while others may become redundant.
- Estate planning: Estate planning is not – and should not – be exclusively tied to retirement. Yet such arrangements directly determine quality of life in our golden years, from guardianship and power of attorney provisions to early inheritances impacting retirement income.
- Living arrangements: Don’t overlook the importance of where you will live in retirement and who you will live with. Downsizing, sea or tree changes, staying put, cohabiting with adult children and retirement living options all have their own unique pros and cons (and costs!) to weigh up. Plus, home ownership provides considerable financial benefits and stability for retirees that renting does not.
- Tax: Sources of retirement income are often taxed quite differently – super, pensions, investment earnings, plus Capital Gains Tax on asset sales. Knowing this up-front may influence your approach, help you minimise your overall tax bill and maximise tax benefits (such as super contributions).
- Lifestyle: How will you spend your days? For some, travel, playing golf, grey nomading and spending time with family and friends dominates. Others may want to continue using their skills to launch a business, volunteer or do paid consulting work. Whatever you choose, plan this ahead to ensure you can afford it and that you don’t simply wind up bored and miserable.
Why a plan is important
Ultimately, the best plan of all is simply to have a plan, in writing.
It ensures that you maximise your asset pool and income for retirement, avoid overpaying taxes and can enjoy an optimal quality of life.
Having a documented plan that outlines the what, where, when, how and even why of your retirement approach also provides visibility over your affairs, which can help protect you against elder abuse and streamline matters for the surviving partner when one partner passes on.
As always, enlist the expertise of your family lawyer and financial adviser (and sometimes your accountant) to ensure you don’t overlook anything, so that your transition to retirement plan is as strong as it can be.
Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: The Essential Guide to Financial Independence for all Women. Helen is among the 1 per cent of financial planners who hold a master’s degree in the field. Proceeds from book sales are donated to charities supporting disadvantaged women and children. Find out more at www.onyourowntwofeet.com.au
Disclaimer: The information in this article is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of people, institutions or organisations the owner may be associated with in a professional or personal capacity unless explicitly stated. Helen Baker is an authorised representative of BPW Partners Pty Ltd AFSL 548754.
As mentioned TTR was the best thing I ever did, I engaged in this 3 years prior to retirement, my actual plan was initially for 5 years however the company I worked for over a period of 40years offered voluntary redundancy packages so my planed TTR was cut to 3 years, as did my retirement came a little earlier, however the TTR worked very well for me and a lot less Tax.